{"id":18928,"date":"2019-09-18T11:43:16","date_gmt":"2019-09-18T11:43:16","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=18928"},"modified":"2019-09-21T00:06:20","modified_gmt":"2019-09-21T00:06:20","slug":"predicting-recessions-with-payroll-and-unemployment-data","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/09\/18\/predicting-recessions-with-payroll-and-unemployment-data\/","title":{"rendered":"Predicting recessions with payroll and unemployment data"},"content":{"rendered":"

Recessions are notoriously difficult to measure (even the NBER occasionally gets it wrong) and an official declaration of a recession may be lagged by more than 6 months. Economist Claudia Sahm devised the Sahm Rule<\/a>, using changes in unemployment levels, as a more timely predictor of recessions.<\/p>\n

\"Sahm<\/p>\n

But the signal repeatedly lags the official start date of recessions by several months, limiting its usefulness for investment purposes.<\/p>\n

In previous articles I observed that payroll growth is a good predictor of recessions. But payroll growth has been declining for decades; so it has been difficult to devise a one-size-fits-all-recessions rule. Until I turned to using momentum.<\/p>\n

Twiggs Momentum is my own variation on the standard momentum formula and I applied this to monthly payroll data to arrive at a 3-month TMO.<\/p>\n

\"Sweden:<\/p>\n

The orange band on the above chart reflects the amber warning range, between 0.5% and 0.3%, where recession is likely. If TMO crosses below the red line at 0.3%, risk of recession increases to very high.<\/p>\n

When the TMO falls below 0.5%, a recession is likely, but there is one false reading at 0.49% in 1986. So I treat 0.5% as an amber<\/em> warning level.<\/p>\n

There are no false signals below 0.3% in the last 50 years. So I treat the 0.3% level as a red<\/em> warning — that recession risk is very high.<\/p>\n

Some of the signals (e.g. 1975) are late but the TMO has a far better record, than the Sahm Rule, at giving timely warning of recessions.<\/p>\n

The August 2019 TMO reading is an amber warning <\/strong>of 0.5%.<\/p>\n","protected":false},"excerpt":{"rendered":"

Recessions are notoriously difficult to measure (even the NBER occasionally gets it wrong) and an official declaration of a recession may be lagged by more than 6 months. Economist Claudia Sahm devised the Sahm Rule, using changes in unemployment levels, as a more timely predictor of recessions. But the signal repeatedly lags the official start … <\/p>\n

Continue reading “Predicting recessions with payroll and unemployment data”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[46,3761,34],"tags":[2881,4126,3563],"class_list":["post-18928","post","type-post","status-publish","format-standard","hentry","category-deficit-spending-employment","category-gdp-and-activity","category-us-canada-countries-regions","tag-recessions","tag-sahm-rule","tag-us-non-farm-payrolls"],"yoast_head":"\nPredicting recessions with payroll and unemployment data - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Predicting recessions with payroll and unemployment data - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Recessions are notoriously difficult to measure (even the NBER occasionally gets it wrong) and an official declaration of a recession may be lagged by more than 6 months. 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Recessions are notoriously difficult to measure (even the NBER occasionally gets it wrong) and an official declaration of a recession may be lagged by more than 6 months. Economist Claudia Sahm uses the following rule as a timely indicator of recessions:","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":37614,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/09\/20\/will-a-recession-kill-inflation\/","url_meta":{"origin":18928,"position":1},"title":"Will a recession kill inflation?","author":"Colin Twiggs","date":"September 20, 2022","format":false,"excerpt":"There is plenty of evidence to suggest that recessions cause a sharp fall in the consumer price index. Alfonso Peccatiello recently analyzed US recessions over the past century and concluded that they caused an average drop in CPI of 6.8%. A recession no doubt reduces inflation but it does not\u2026","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"MacroAlf: CPI & Recessions","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-20-cpi-recessions.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-20-cpi-recessions.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-09-20-cpi-recessions.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":5590,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/09\/26\/philadelphia-fed-worrying-drop-in-state-coincident-indicators\/","url_meta":{"origin":18928,"position":2},"title":"Philadelphia Fed: Worrying drop in state coincident indicators","author":"Colin Twiggs","date":"September 26, 2012","format":false,"excerpt":"Tom Porcelli, economist at RBC Capital, points out a worrying drop in the Philadelphia Fed survey of state coincident indicators. The Monthly Index has turned up but the 3-Month Index continues downward. Reversal of the Monthly Index in the next few months would be cause for concern. When we look\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5833,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/24\/philadelphia-fed-september-up-turn-in-state-coincident-indicators\/","url_meta":{"origin":18928,"position":3},"title":"Philadelphia Fed: September up-turn in state coincident indicators","author":"Colin Twiggs","date":"October 24, 2012","format":false,"excerpt":"September readings for the Philadelphia Fed survey of state coincident indicators are now out. The 3-Month Index has turned to follow the Monthly Index upward. Reversal of the Monthly Index below 80, however, would be cause for concern. When we look at the index over the last 30 years, down-turns\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":20484,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/05\/09\/sharp-fall-in-us-jobs-warns-of-economic-contraction-ahead\/","url_meta":{"origin":18928,"position":4},"title":"Sharp fall in US jobs warns of economic contraction ahead","author":"Colin Twiggs","date":"May 9, 2020","format":false,"excerpt":"Initial jobless claims filed in the US in the last 7 weeks now total 33.5 million. Total employment in April 2020 fell by 12.9% when compared to twelve months earlier. We use total hours worked (total payroll * average weekly hours) to estimate GDP growth. It does tend to overshoot\u2026","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9477,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/03\/12\/high-credit-growth-prolongs-recessions\/","url_meta":{"origin":18928,"position":5},"title":"High credit growth prolongs recessions","author":"ColinTwiggs","date":"March 12, 2014","format":false,"excerpt":"Research by the Federal Reserve Board of San Francisco shows how high credit growth prior to a financial crisis can prolong the recession by three or more years. The graph below compares the average recovery time for a normal recession to recessions preceded by low credit growth [blue or red]\u2026","rel":"","context":"In "Debt Levels"","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"Recession Recovery Time","src":"https:\/\/i0.wp.com\/www.frbsf.org\/economic-research\/files\/2014-07-2.png?resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18928","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=18928"}],"version-history":[{"count":7,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18928\/revisions"}],"predecessor-version":[{"id":18930,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18928\/revisions\/18930"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=18928"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=18928"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=18928"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}